Exhibit 4.2


 


COMMON STOCK PURCHASE WARRANT


 


To Purchase      
Shares of Class A Common Stock of

August    , 2008


 


WAVE SYSTEMS CORP.


 


THIS COMMON STOCK PURCHASE
WARRANT (the “Warrant”) certifies that, for value received, Security
Research Associates, Inc. (the “Holder”), is entitled, upon the
terms and subject to the limitations on exercise and the conditions hereinafter
set forth, at any time on or after the 180th day following the date hereof (the
“Initial Exercise Date”) and on or prior to the close of business on February    ,
2010 (the “Termination Date”) but not thereafter, to subscribe for and
purchase from Wave Systems Corp., a Delaware corporation (the “Company”),
up to              shares
(the “Warrant Shares”) of Class A Common Stock, par value $0.01 per
share, of the Company (the “Common Stock”). The purchase price of one
share of Common Stock under this Warrant shall be equal to the Exercise Price,
as defined in Section 2(b).


 


Section 1.               Definitions 
.. As used herein, the following terms shall have the following meanings:


 


“Trading Day” means a
day on which the Common Stock is traded on a Trading Market.


 


“Trading Market” means
the following markets or exchanges on which the Common Stock is listed or
quoted for trading on the date in question: the Nasdaq Global Market, the
American Stock Exchange, the New York Stock Exchange, the Nasdaq National
Market or the OTC Bulletin Board.


 


Section 2.               Exercise.


 


(a)           Exercise
of Warrant.  Exercise of the purchase
rights represented by this Warrant may be made, in whole or in part, at any
time or times on or after the Initial Exercise Date and on or before the
Termination Date by delivery to the Company of a duly executed facsimile copy
of the Notice of Exercise Form annexed hereto (or such other office or
agency of the Company as it may designate by notice in writing to the
registered Holder at the address of such Holder appearing on the books of the
Company); provided, however, within 2 Trading Days of the date
said Notice of Exercise is delivered to the Company, if this Warrant is
exercised in full, the Holder shall have surrendered this Warrant to the
Company and the Company shall have received payment of the aggregate Exercise
Price of the shares thereby purchased by wire transfer or cashier’s check drawn
on a United States bank. Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant to the
Company until the Holder has purchased all of the Warrant Shares available
hereunder and the Warrant has been exercised in full. Partial exercises of this
Warrant resulting in purchases of a portion of the total number of Warrant
Shares available hereunder shall have the effect of lowering the outstanding
number of Warrant Shares purchasable hereunder in an amount equal to the
applicable number of Warrant Shares purchased. The Holder and the Company shall
maintain records showing the number of Warrant Shares purchased and the date of
such purchases. The Company shall honor any valid Notice of Exercise Form pursuant
to the terms hereof. The Company shall deliver an objection to any invalid
Notice of Exercise Form within 3 Trading Days of its receipt thereof. The
Holder and any assignee, by acceptance 


 


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of this Warrant, acknowledge and agree that, by reason
of the provisions of this paragraph, following the purchase of a portion of the
Warrant Shares hereunder, the number of Warrant Shares available for purchase
hereunder at any given time may be less than the amount stated on the face
hereof.


 


(b)           Exercise
Price.  The exercise price of the
Common Stock under this Warrant shall be $0.65 subject to adjustment hereunder
(the “Exercise Price”).


 


(c)           Cashless
Exercise. This Warrant may also be exercised by means of a “cashless
exercise” in which the Holder shall be entitled to receive a certificate for
the number of Warrant Shares equal to the quotient obtained by dividing [(A-B)
(X)] by (A), where:


 


(A)  =  the VWAP on the Trading Day immediately
preceding the date of such election;


 


(B)  =  the Exercise Price of this Warrant, as
adjusted; and


 


(X)  =  the number of Warrant Shares issuable upon
exercise of this Warrant in accordance with the terms of this Warrant by means
of a cash exercise rather than a cashless exercise.


 


For purposes hereof “VWAP “ means, for any date, the price determined
by the first of the following clauses that applies: (a) if the Common
Stock is then listed or quoted on a Trading Market, the daily volume weighted
average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted for
trading as reported by Bloomberg Financial L.P. (based on a Trading Day from
9:30 a.m. (New York City time) to 4:02 p.m. (New York City time); (b) if
the OTC Bulletin Board is not a Trading Market, the volume weighted average
price of the Common Stock for such date (or the nearest preceding date) on the
OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading
on the OTC Bulletin Board and if prices for the Common Stock are then reported
in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization
or agency succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported; or (d) in all other
cases, the fair market value of a share of Common Stock as determined in a
reasonable manner and in good faith by the Company.


 


(d)           Mechanics
of Exercise.


 


i.              Authorization
of Warrant Shares.  The Company
covenants that all Warrant Shares which may be issued upon the exercise of the
purchase rights represented by this Warrant will, upon exercise of the purchase
rights represented by this Warrant, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges in respect of
the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).


 


ii.             Delivery of
Certificates Upon Exercise. 
Certificates for shares purchased hereunder shall be transmitted by the
transfer agent of the Company to the Holder by crediting the account of the
Holder’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission (“DWAC”) system if the Company is a
participant in such system, and otherwise by physical delivery to the address
specified by the Holder in the Notice of Exercise within 3 Trading Days from
the delivery to the Company of the Notice of Exercise Form, surrender of this
Warrant (if required) and payment of the aggregate Exercise Price as set forth
above (“Warrant Share Delivery Date”). This Warrant shall be deemed to
have been 


 


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exercised on the
date the Exercise Price is received by the Company. The Warrant Shares shall be
deemed to have been issued, and Holder or any other person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised by payment to
the Company of the Exercise Price and all taxes required to be paid by the
Holder, if any, have been paid.


 


iii.            Delivery of New
Warrants Upon Exercise.  If this
Warrant shall have been exercised in part, the Company shall, at the request of
a Holder and upon surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase the
unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.


 


iv.            Rescission
Rights.  If the Company fails to
cause its transfer agent to transmit to the Holder a certificate or
certificates representing the Warrant Shares pursuant to this Section 2(c) by
the Warrant Share Delivery Date, then the Holder will have the right to rescind
such exercise.


 


v.             No Fractional
Shares or Scrip.  No fractional
shares or scrip representing fractional shares shall be issued upon the
exercise of this Warrant. As to any fraction of a share which Holder would
otherwise be entitled to purchase upon such exercise, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price.


 


vi.            Charges, Taxes
and Expenses.  Issuance of
certificates for Warrant Shares shall be made without charge to the Holder for
any issue or transfer tax or other incidental expense in respect of the
issuance of such certificate, all of which taxes and expenses shall be paid by
the Company, and such certificates shall be issued in the name of the Holder or
in such name or names as may be directed by the Holder; provided, however,
that in the event certificates for Warrant Shares are to be issued in a name
other than the name of the Holder, this Warrant when surrendered for exercise
shall be accompanied by the Assignment Form attached hereto duly executed
by the Holder; and the Company may require, as a condition thereto, the payment
of a sum sufficient to reimburse it for any transfer tax incidental thereto.


 


vii.           Closing of Books.  The Company will not close its stockholder
books or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.


 


(e)           Exercise
Without Registration Statement.  If,
at the time of any exercise of this Warrant, the Warrant Shares shall not be
registered under the Securities Act of 1933, as amended (the “Securities Act”),
the Company may require, as a condition of such exercise, that the Holder furnish
to the Company an opinion of counsel reasonably satisfactory to the Company to
the effect that such exercise may be made without registration under the
Securities Act or registration or qualification under any state or other
applicable securities laws.


 


Section 3.               Certain Adjustments.


 


(a)           Stock
Dividends and Splits.  If the
Company, at any time while this Warrant is outstanding: (A) pays a stock
dividend or otherwise make a distribution or distributions on shares of its
Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include any
shares of Common Stock issued by the Company pursuant to this Warrant), (B) subdivides
outstanding shares of Common Stock into a larger number of 


 


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shares, (C) combines (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of
shares, or (D) issues by reclassification of shares of the Common Stock
any shares of capital stock of the Company, then in each case the Exercise
Price shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such event
and the number of shares issuable upon exercise of this Warrant shall be
proportionately adjusted. Any adjustment made pursuant to this Section 3(a) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.


 


(b)           Fundamental
Transactions.  If, at any time after
the Initial Exercise Date, there shall occur any capital reorganization or
reclassification of the Common Stock (other than a change in par value or a
subdivision or combination as provided for in Section 3 (a) above),
or any consolidation or merger of the Company with or into another corporation,
or a transfer of all or substantially all of the assets of the Company, or the
payment of a liquidating distribution, then, as part of any such
reorganization, reclassification, consolidation, merger, sale, or liquidating
distribution, lawful provision shall be made so that Holder shall have the
right thereafter to receive upon the exercise hereof (to the extent still exercisable)
the kind and amount of shares of stock or other securities or property to which
Holder would have been entitled to receive if, immediately prior to any such
reorganization, reclassification, consolidation, merger, sale, or liquidating
distribution, as the case may be, Holder had held the number of shares of
Common Stock which were then purchasable upon the exercise of this Warrant. In
any such case, appropriate adjustment (as reasonably determined by the Board of
Directors of the Company) shall be made in the application of the provisions
set forth herein with respect to the rights and interests thereafter of Holder
such that the provisions set forth in this paragraph (b) shall thereafter
be applicable, as nearly as is reasonably practicable, in relation to any
shares of stock or other securities or property thereafter deliverable upon the
exercise of this Warrant.


 


(c)           Calculations.  All calculations under this Section 3
shall be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 3, the number of shares of
Common Stock deemed to be issued and outstanding as of a given date shall be
the sum of the number of shares of Common Stock (excluding treasury shares, if
any) issued and outstanding.


 


(d)           Notice
to Holders.  Whenever the Exercise
Price is adjusted pursuant to this Section 3, the Company shall promptly
mail to each Holder a notice setting forth the Exercise Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.


 


Section 4.               Transfer of Warrant.


 


(a)           Transferability.  Subject to Section 5(a) below, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant at the principal office of the Company, together with
a written assignment of this Warrant substantially in the form attached hereto
duly executed by the Holder or its agent or attorney and funds sufficient to
pay any transfer taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, the Company shall execute and deliver
a new Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and
shall issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be cancelled. A
Warrant, if properly assigned, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.


 

















 


(b)           New
Warrants.  This Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office of the Company, together with a written notice specifying the
names and denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with Section 4(a),
as to any transfer which may be involved in such division or combination, the
Company shall execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such notice.


 


Section 5.               Miscellaneous.


 


(a)           Title
to Warrant.  Prior to the Termination
Date and subject to compliance with applicable laws and Section 4 of this
Warrant, this Warrant and all rights hereunder are transferable, in whole or in
part, at the office or agency of the Company by the Holder in person or by duly
authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed.


 


(b)           No
Rights as Shareholder Until Exercise. 
This Warrant does not entitle the Holder to any voting rights or other
rights as a shareholder of the Company prior to the exercise hereof. Upon the
surrender of this Warrant and the payment of the aggregate Exercise Price (or
by means of a cashless exercise), the Warrant Shares so purchased shall be and
be deemed to be issued to such Holder as the record owner of such shares as of
the close of business on the later of the date of such surrender or payment.


 


(c)           Loss,
Theft, Destruction or Mutilation of Warrant.  The Company covenants that upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant,
shall not include the posting of any bond), and upon surrender and cancellation
of such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.


 


(d)           Saturdays,
Sundays, Holidays, etc.  If the last
or appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or legal holiday.


 


(e)           Authorized
Shares.  The Company covenants that
during the period the Warrant is outstanding, it will reserve from its
authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of the Warrant Shares upon the exercise of any purchase rights
under this Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are charged with
the duty of executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights
under this Warrant.


 


(f)            Governing
Law; Jurisdiction.  This Warrant will
be governed by, and construed in accordance with, the internal laws of the
State of New York, without giving effect to the principles of conflicts of law
that would require the application of the laws of any other jurisdiction. Any
legal action, suit or proceeding arising out of or relating to this Warrant or
the transactions contemplated hereby shall only be instituted, heard and
adjudicated (excluding appeals) only in a state or federal court located in New
York, and each party hereto knowingly, voluntarily and intentionally waives any
objection which such party may now or hereafter have to the laying of the venue
of any such action, suit or proceeding, and irrevocably submits to the
exclusive personal jurisdiction of any such court in any such action, suit or
proceeding. Service of process in connection with any such action, suit or
proceeding may be served on 


 

















 


each party hereto anywhere in the world by the same
methods as are specified for the giving of notices under this Warrant.


 


(g)           Restrictions.  The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.


 


(h)           Notices.  All notices, requests, consents and other
communications hereunder will be in writing, will be mailed (a) if within
the domestic United States by first-class registered or certified airmail, or
nationally recognized overnight express courier, postage prepaid, or by
facsimile or (b) if delivered from outside the United States, by
International Federal Express or facsimile, and will be deemed given (i) if
delivered by first-class registered or certified mail domestic, three business
days after so mailed, (ii) if delivered by nationally recognized overnight
carrier, one business day after so mailed, (iii) if delivered by
International Federal Express, two business days after so mailed, and (iv) if
delivered by facsimile, upon electronic confirmation of receipt and will be
delivered and addressed as follows:


 


1.             if to the Company, to:


 


Wave Systems
Corp.

480 Pleasant Street

Lee, MA 01238

Fax: (413) 243-0391

ATTN: Gerard Feeney, CFO


 


with copies
to:


 


Bingham
McCutchen LLP

399 Park Avenue

New York, NY 10022

Fax: (212) 752-5378

ATTN: Neil W. Townsend


 


2.             if to the Holder, at such address or addresses of the
Holder as have been furnished to the Company in writing.


 


(i)            Limitation
of Liability.  No provision hereof,
in the absence of any affirmative action by Holder to exercise this Warrant or
purchase Warrant Shares, and no enumeration herein of the rights or privileges
of Holder, shall give rise to any liability of Holder for the purchase price of
any Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.


 


(j)            Remedies.  Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance that
a remedy at law would be adequate.


 


(k)           Successors
and Assigns.  Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the successors and permitted assigns of Holder. The provisions of this
Warrant are intended 


 

















 


to be for the benefit of all Holders from time to time
of this Warrant and shall be enforceable by any such Holder or holder of
Warrant Shares.


 


(l)            Amendment.  This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder.


 


(m)          Severability.  Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Warrant.


 


(n)           Headings.  The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.


 


********************


 


IN WITNESS WHEREOF, the Company
has caused this Warrant to be executed by its officer thereunto duly
authorized.


 


Dated: August    ,
2008.


 


 


	
   

  	
  WAVE
  SYSTEMS CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Gerard T. Feeney

  
	
   

  	
   

  	
  CFO

  



 

















 


NOTICE OF EXERCISE


 


TO:                            WAVE
SYSTEMS CORP.


 


(1)                                  The
undersigned hereby elects to purchase   Warrant
Shares of the Company pursuant to the terms of the attached Warrant (only if
exercised in full), and tenders herewith payment of the exercise price in full,
together with all applicable transfer taxes, if any.


 


(2)                                  Payment
shall take the form of (check applicable box):


 


o                          in
lawful money of the United States; or


 


o                         the
cancellation of such number of Warrant Shares as is necessary, in accordance
with the formula set forth in subsection 2(c), to exercise this Warrant with
respect to the maximum number of Warrant Shares purchasable pursuant to the
cashless exercise procedure set forth in subsection 2(c).


 


(3)                                  Please
issue a certificate or certificates representing said Warrant Shares in the
name of the undersigned or in such other name as is specified below:


 


The Warrant Shares shall be delivered to the following:


 

















 


ASSIGNMENT FORM


 


(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)


 


FOR VALUE RECEIVED, the
foregoing Warrant and all rights evidenced thereby are hereby assigned to


 


 


whose address is


 


 


Dated:


 


 


	
  Holders
  Signature:

  	
   

  	
   

  
	
  Holder’s
  Address:

  	
   

  	
   

  



 


 


	
  Signature Guaranteed:

  	
   

  	
   

  



 


NOTE: The signature to this Assignment Form must correspond with
the name as it appears on the face of the Warrant, without alteration or
enlargement or any change whatsoever, and must be guaranteed by a bank or trust
company. Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign the
foregoing Warrant.